Agreement, Consideration, Capacity & Intention Flashcards
Offer
Expression of willingness to negotiate a contract on certain terms, made with the intention, that it shall become binding as soon as it is accepted.
What form can offer take?
Different forms
e.g. letter, newspaper advertisement, email, text message, conduct.
What is the objective approach of the court to an agreement?
What a reasonable person would say was the intent of the parties having regard to all the circumstances.
With contracts, do you look into actual intent of a man’s mind? Will saying “I did not intend to contract” negate the contract?
No - you look at what he said and did
No - will merely be first step in negotiations - “will sell” would be intention to be bound
This is certainty of offer
Gibson - City wrote to tenant saying council ‘may be prepared to sell house at purchase price of £x’ - was not a binding conttact once the tenant completed the form
What is the difference between unilateral and bilateral contracts?
Bilateral: Each party assumes obligation to other party by making a promise to do something
‘Unilateral’ (see note): One party makes an offer calling for an act to be performed by one or more parties. Actual performance will constitute acceptance e.g. “if you deliver a watch to me in the next ten days I will immediately pay you £100”
NB unilateral contracts don’t actually exist - is just a contract formed
What is the difference between an offer and an invitation to treat?
Offer: An undertaking to be contractually bound by terms in the event of unconditional acceptance.
Invitation to treat: A first step in negotiations which may or may not lead to an offer. Does NOT use committed language.
Types: advertisements, display of goods (in shop window), invitations to
What is the general rule regarding what advertisements are?
They are statements inviting further negotiations/invitations to treat
When is an advertisement is not an invitation to treat?
What is the exception for advertisements?
Where an advertisement amounts to a unilateral offer
Advert for a reward (definite promise to pay if a specified condition)
Carbolic Smoke Ball - issued advertisement offering to pay £100 to any person who used a smoke ball for a specified period but still contracted influenza; they deposited £1000 in bank account to show sincerity - Ds bound to pay money to someone who contracted influenza as this was a unilateral offer: clear prescribed act, performance of which constituted acceptance + deposit of £1,000 + certainty of language.
What are the 2 requirements of a unilateral offer as per Carbolic?
- Prescribed act; and
- Clear intention to be bound
When are unilateral contracts formed?
“If you do X, I promise to do Y.”
Only one party making a promise, no one is bound to do a specified act.
Usually advertismenets are invitations of treat, but if there are special circumstances that show intention of be bound
Eg in Carill money dposited with a bank in case anyone met conditions
Then advertismeent may amount to a unilateral offer
Are price-marked goods displayed in a shop window an offer? Is this different when there is a ‘special offer’ or in a self-service store?
No - will always be an invitation to treat
Would be problematic re minors + alcohol if it was an offer
What is the general rule on invitations to tender? Must the requestor accept the most competitive?
Where a party wishes to purchase major item/service - requestor invites
Will be invitations to treat - requestor can accept or reject any tender even if most competitive
What is the general rule on auction sales?
Will be an invitation to treat - acceptance of bidder’s offer is indicated by fall of auctioneer’s hammer
What are the exceptions for an invitation to tender and auctions?
Where the invitation to tender expressly undertakes to accept the highest/lowest bid (is a unilateral contract)
In an auction without reserve where seller promises to sell to the highest bidder (cf auctions with reserve; if no bid made above price seller keeps goods)
Where there is an auction without reserve, how can the auctioneer be sued for breach of contract if they refuse to sell to the highest bona fide bidder? Is the bidder entitled to the goods?
Because there are two contracts…
1. Bilateral contract where bidder makes offer
2. Unilateral contract based on promise that auction will be without reserve
The highest bidder is not entitled to the goods as this is dictated by bilateral contract, but entitled to compensation by damages
What are the 4 rules in relation to acceptance?
Can anyone accept? What is the rule? How does one accept?
Must be in response to an offer (i.e. only person to whom offer is made can accept, no eavesdroppers)
Must be unqualified (mirror-image rule; correspond exactly with offer terms)
May be necessary to follow (clearly) prescribed mode of acceptance
Acceptance must be communicated
Acceptance must be communicated
How?
Can be accepted by
* words; or
* conduct (if there’s a unilateral contract)
Will the prescribed mode of acceptance always be mandatory? If it is not mandatory, what other form of acceptance will bind offeror?
Only mandatory if particularly clear words
If not mandatory: another mode of acceptance no less advantageous to offeror will bind them
Can silence amout to acceptance?
If there is intention to accept but no communication what happens?
Silence CANNOT amoount to accpetance!
Intention but no communication = no contract (i.e. mental assent not acceptance)
Can authorised agent inform of acceptance?
Yes, authorised agent can inform of acceptance under authority of offeree
How do the rules of revocation change for a unilateral offer?
Re partial performance
Possible to revoke any time prior to completion, but will be under **implied promise **not to revoke if specified act is started within a reasonable time
Partial performance - sufficient to prevent revokation
Errington - father agreed to give house to son and daughter-in-law if they paid off mortgage on house - couple made several payments when dad sought to revoke offer - court held promise could not be revoked after instalments began and continued to be paid
How is revocation possible where an offer is made to the whole world?
Almost impossible and only effective if offeror takes reasonable steps to bring revocation to attention of those who saw offer
What is the postal rule?
Re acceptance
Acceptance takes effect from moment letter of acceptance is properly posted not when received by offeror
Properly posted = letter box, hands of authorised postal operative
Offer accepted when posted
Binding contract at the time of posting letter
What is the effect on a letter being delayed/lost in the post on the postal rule?
Nothing - rule will still apply
Accepted as soon as posted, regardless of whether its read!
Postal rule is exception to the principle that acceptance must be communicated to make a binding contract.
For poastal rule to apply, following conditions must be met:
- it was reasonable to use post
- letter was properly addressed
- postal rule was not been excluded by offeror
(Rule excluded if offer said it requires “notice” in writting to D, acceptance actually had to arrive with D to be effective).
When does the postal rule not apply?
3 situations
- If not contemplated post would be used (e.g. prompt acceptance required)
- If incorrectly addressed
- If disapplied by offeror (ousts postal rule e.g. requires receipt of acceptance)
Implied condition of prompt acceptance means post would be unreasonable
Does the postal rule apply to revocation the same way?
No - revocation of an offer must be received to be effective
What are the rules with instantaneous communication?
Acceptance takes place where it is received by the offeror
Where acceptance is communicated by instantaneous means, what happens where the acceptance is not fully communicated due to the fault of the offeror?
E.g. poor mobile reception and do not ask acceptance to be repeated
Offeror may be prevented from saying they did not receive acceptance
Cf not received without fault of offeror = no contract
When email is by acceptance and is sent in ordinary office hours on a Friday, but is not seen until Monday, when will it be received (and thus acceptance effective)?
Would have been received on the Friday
Offeree reasonably assumed there was effective communication
What about outside of ordinary office hours and emails re acceptance?
I.e. If aen email is sent in the late hours of Friday?
A message sent in late hours of Friday would be received at start of business on Monday
Especially important in international communications
How do you communicate acceptance of a unilateral contract?
No need for communication; performance is sufficient!
Summary on when:
1. Rejection
2. Revocation
3. Acceptance
happens
- Communicated to offeror
- Effective upon notice reaching offeror
- Postal rule = when posted, instantaneous communication = when received by offeror
How can an offer be terminated?
3 ways
- Counter offer
- Lapse of time (passage of time or death)
- Express rejection
- Revocation i.e. withdrawal of offer by offeror (before acceptance)
If oferee paid £1 to keep an option to buy house open for six months, cannot revoke offer.
Once an offer has been rejected, can it be accepted?
Not unless offeror makes same offer again
When will rejection take effect?
Not until it is actually communicated to the offeror - only then do they know they are free from offer
What happens when a counter-offer is accepted?
In terms of the original offer
The original offer is deemed to have been rejected and the counter-offers terms become those of the contract
Last person to assert their own terms and conditions likely to prevail
Rules on certainty of agreement? Will the courts not enforce if they doubt certainty?
Only an agreement which is sufficiently certain can be enforced by court.
Applies an objective test
Not enforcing is a last resort, courts will look to enforce agreement reflecting intentions of the parties.
Will an agreement on ‘hire-purchase’ terms (alone) be certain enough to be enforced?
No - so many different hire-purchase agreements that this was too vague to be an enforceable contract
Will an agreement to buy ‘X of fair specification’ be certain enough to be enforceable?
Hillas - ‘timber of fair specification’
Potentially yes - if words could be given a reasonable meaning (esp in light of previous dealings)
Whether or not parties reached a complete agreement on materials terms is judged objectively, in context of eg:
- whether parties are in the same trade
- trade usage
- whether arrangement has been acted on for any length of time; and
- whether there is an objective mechanism for resolving any uncertainty, e.g. arbitration clause or a way to calculate e.g. market price at the date of a delivery
If there is provisional agreement only, and official one is yet to be drawn?
Irreleavnt that formalised agreement is yet to be drafted, contracts do not have to be in any particular form, parties can be in agreement regardless.
Consideration
provide something of value in return
What is the basic rule of consideration?
To be able to enforce a promise made to you, you must be able to show you agreed to provide something in return
Consideration = some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other
Can detriment be good consideration?
BUT THIS CONFLICTS SO IDK ABOUT THIS LOL Combe - on divorce husband promised ex wife an allowance of £100 a year but did not make any agreed payments - wife attempted to use PE as a cause of action as she had relied on it = CoA held no consideration given by wife so could not succeed on action
What is the difference between executory consideration and executed consideration?
Executory consideration: Parties promise one another to perform something in the future afrter contract formed (e.g. deliver goods to be paid for on delivery)
Executed consideration: At time of formation of the contract, consideration already performed (e.g. unilateral contract formed when acceptance occurs)
Executory consideration means parties can both agree to provide something, and still fulfil element of consideration for the formation of a contract
Consideration need not be adequate
It has to be of some value but does not matter how much/unequal
Consideration must be sufficient
Sort of thing the law regards as being appropriate subject matter for a bargain
In consideration for ‘natural love and affection’ / ‘stop complaining about being disinherited’ = not consdieration.
Promise to stop swearing, gambling, drinking, smoking?
US case: people have a right to swear etc, but as a matter of public policy should be discoubraged. Promise to refrain from doing so, held sufficient.
Is performing public duty good consideration?
No
But exceeding public duty = good consideration.
What are the 4 rules of consideration?
Think: time, move, adequacy and value
Subject to exceptions!
Must not be past - cannot use act/forbearance which has taken place prior to promise to pay
Must move from promisee - a party who has not provided consideration may not bring action to enforce contract (consideration cannot come from third party if promisee wants to enforce)
Need not be adequate - will not interfere with bargain (do not need to be of equal value)
Must be sufficient - must have some value in the eyes of the law (no matter how small)
For sufficiency of consideration - Nestle: chocolate wrappers were good consideration despite being no value to Nestle in exchange for gramophone records and money
Past consideration
If A already did/provided smth in the past without being promised anything in return at the time, new promise to pay now once work has been done is not binding.
What is the exception for past consideration?
Past consideration example - Eastwood - Eastwood brought up a girl but this was not good consideration for a contract in which he was promised to have his debt paid off in the present as it was in the past
- Where prior act/service was provided by promisee at **promisor’s request **
- and mutual undertanding: it was always understood that payment would be made for it
But likely that contract had already formed!
What are the 3 requirements for the past consideration exception?
- Act must have been done at promisor’s request
- Parties must have understood act was to be rewarded by payment/benefit (expressly or impliedly)
- Payment/benefits must have been legally enforceable had it been promised in advance
E.g. taking a car to the garage, leaving it for repairs, and ultimate price to be decided after completion of repairs
What does it mean that consideration must move from the promisee?
A party who has not provided consideration cannot bring action to enforce contract
Tweddle - 2 fathers of couple who were about to get married agreed that father of bride paid £200 and father of groom £100 to. bridegroom - groom sought to enforce father-in-law’s promise but held that he could not as no consideration provided (had been provided by fathers)
Can an existing contract be good consideration?
Re promise to pay more - good consideration?
Generally, no.
But if party exceeds existing obligations or provides a practical benefit then it can be good consideration
practical benefit = consideration
Williams v Roffey - carpenter got into financial difficutly after contracting to build block of flats, needed additional money otherwise could not complete work, meaning the contractors would have been liable for substantial penalties to main contractors - contractors offered additional sum per flat and then did not stick to promise - avoidance of need to find alternative contractor to do work was held to be a practical benefit, so carpenters had provided good consideration
Performing existing contractual duty
Not consideration
If promise to pay more was made under duress
It may be set aside
Can an existing public duty be good consideration?
Carrying out a public duty imposed by law will not amount to good consideration, but **going beyond it **will
England - Police officer providing information to private individual went beyond their public duty of preventing crime
Can an existing contract with third party be good consideration?
Where A promises to do X for B, then promises to do X for C too
Yes - party here is putting itself at risk of double liability :o
Promise to accept less
Part payment of the full sum/credit to settle debt is not binding.
Pinnel - creditor sinly accepting part payment in full and final settlement of the full amount is not binding on creditor.
Foakes - she was not given any consideration for her promise to forego interest in debt - not binding.
Common law exceptions to rule in Pinnel
Part-payment in advance of due date (benefit to creditor) = good consideration
In what 2 situations can part-payment of debt be good consideration?
Where debtor pays part of debt in return for release from remainder of liability (offering to do something already obliged to do)
Not good consideration even if creditor agrees to release from liability!
Unless:
- Introducing new element (e.g. providing different thing instead of money, paying at different time); or
- Payment of a lesser sum by a third party (creditor accepts payment by AA of lesser sum; cannot sue debtor for difference)
Can also involve practical benefit
Must be some benefit/consideration for creditor’s promise to accept less to be binding, otherwise…
Otherwise debtor is at risk of creditor changing his mind
How to make variation of contract binding?
- Agreement (offer + acceptance)
- Intention
- Consideration
What is the doctrine of promissory estoppel?
A defence where a party relies on a promise; a promisor cannot go back on a promise where the promisee has relied on it
Can only be used as a defence.
Prevents creditor from going back on a promise to accept part payment if it would be unfair to do so.
Equitable doctorine.
High Trees - tenant could rely on PE to prevent landlord going back on promise to accept reduced rent during war years when flats not fully let. Landord can claim full rent once war time ended + for future, but not during the period of concession (war).
Can promissory estoppel be used to start a claim?
NO!!!
Promissory estoppel can only be used as defence.
What are the parameters of promissory estoppel:
- What does it not act as?
- What must the promise be?
- What must happen to the position in reliance of promise?
- Will deteriment be necessary?
4 conditions
- Acts as a shield not a sword (does not give right to sue)
- Clear and unequivocal promise not to enforce strict legal rights
- Someone has relied on that promis, even though they have not provided anything (promisee has made a change in position in reliance);
- If he tries to enforce, will be estopped = prevented from going back on it if it would be inequitable (unfair) (if detrimental = more likely to make it inequitable!)
Detriment not required
What will not amount to a ‘clear and unequivocal promise’?
A gratuitous privilege given to promisee - promise must be intended to affect legal relations
Can promissory estoppel still operate as a defence where the D knowingly underpays and this is accepted?
D&C Builders - Ds knew builders under financial difficulty and offered a cheque of £300 in full settlement of £482 debt, which was accepted by the builders, but they later sued for the balance and D sought to rely on promissory estoppel…
No - those who seek equity must do equity
How can a promisor resume their legal rights in a case of promissory estoppel?
2 scenarios
- Giving reasonable notice or
- Waiting until the period of PE to end (e.g. end of reduced payments for set month)
Suspends rights, does not extinguish
Will promissory estoppel ever extinguish legal rights?
And not just suspend
Yes - past rights e.g. rent for previous quarters in High Trees
Limitations of promissory estoppel
- it can only be used as a defence
- there must have been a promise to waive strict legal rights
- Promisee (debtor) must have acted on the promise *but not necessarily to their detriment. *(E.g. in High Trees - debtor simply paid half rent).
- With ongoing payments, doctorine operates to suspend strict legal right (i.e. creditor can resume full payment with* reasonable notice*). But creditor cannot claim back any payments for concessionary period.
- To use equitable promissory estoppel, party must have clean hands. (Eg if debtor just wants to take avdantage of creditor’s difficulties = cannot use promissory estoppel as a defence).
What is the test for an intention to create legal relations?
Objective; determined by what actions of parties in circumstances suggest
How do commercial and social/domestic agreements differ re intention to create?
Commercial = presumption that parties (B2B/B2C) intend to be bound (rebutted through clear words)
Social/domestic = presumption there was no intention (rebutted through circumstances e.g. separation)
What is the presumption on intention where an agreement is made by family members living in amity?
Amity = a good relationship
Presumption against intention
Will ambiguous wording rebut the presumption that commercial parties intended agreements to be binding?
No - clear words must be used
Husband and wife.
Solicitors are settling financial terms of their advice.
Yes, intention to be bound as parties dealing at arm’s length. Solicitor’s involved.
Two Friends. Reach an agreement on how they will contribute to a joint venture.
Yes,intentoin to be bound because lots of money at stake.
Brother and sister. Expressly agree that their agreement will be legally binding.
Yes, presumption would be rebutted, there is intention to be bound.
Two counsins. One sells house to the other.
Yes, relationship not particularly close but agr is about asset of considerable worth and will have been formalised.
Parent and child. Agree that child must wash dishes to get their weekly financial allowance of £10.
No, very close relationship (parent/child) and sum involved is nominal.
Do advertisements present an intention to be bound?
Carbolic - assurance of deposit money was demonstration of intention
Esso Petroleum - business context, commercial advantage, trivial value, and likelihood of legal remedies were all considered as factors
What inference does the expression ‘subject to contract’ create?
An inference that parties do not intend to be bound until formal execution of contract - so an agreement ‘subject to contract’ is not binding
In a sale of land, it is usual to express tentative preliminary agreement to be ‘subject to contract’, so as to give the parties an opportunity to reflect/seek legal or other advice before entering a binding contra
Who has capacity to enter into a contract?
Those over 18 with sound mind and not suffering from a factor ruling out capacity
Minors generally not bound, but see exeptions (e.g. necessaries)
If someone contracted with a minor, and was not aware that the minor has lied about their age, will they generally be bound by a contract they enter with them?
No
What are the exceptions for minors re capacity?
I.e. when both parties bound by contract
- Bound by contract to supply necessaries to them if contract is for minor’s benefit
- Contracts of employment, apprenticeships or education if it is for benefit of minor
What is a ‘necessary’?
A good suitable to the condition in life of the minor or other person concerned and to their actual requirements at time of sale and delivery
Nash - wasitcoats supplied to minor undergrad at Cambridge were suitable but not necessary as he already had sufficient clothing = contract not enforceable
Must a minor pay the actual cost of the ‘necessaries’ supplied?
No - need to pay a reasonable price
Will a young footballer’s contract with a club be beneficial and thus enforceable?
Aylesbury Football Club
Not if they do not receive extra training/experience, terms are onerous, wages depended on will of employer, and/or freedom is restricted to pursue football career
Not a contract for neccessaries.
Minor entitled to terminate his contract with football agent - not bound.
Can someone party to a contract with a minor enforce it? Vice versa?
Unless one of the exceptions applies…
- Cannot enforce contract against minor
- Minor can enforce contract against other party
Once minor reaches 18, contract binding on them
When does someone lack capacity under MCA?
If they are unable to make a decision for themselves in relation to matter at time contract made (whether impairment is permanent or temporary)
NB capacity not something someone has for all purposes e.g. someone with brain injury might have capacity to decide where to live but not to invest a large sum of money
What is the effect of entering into a contract with a person lacking capacity? Binding or voidable?
Contract is binding unless person claiming incapacity can establish they did not understand what they were doing and other party knew this (contract voidable if so)
If person is incapable of undetanding nature of transaction AND other party knew that this was the case
Contract is voidable = person with mental incapacity can choose to terminate.
If the other party is UNAWARE of A’s mental incapacity
Contract is valid, even if A has dementia/mental incapacity/cannot undertand the deal.
What is the exception for persons without capacity? What will they remain liable for?
To pay a reasonable price for ‘necessaries’; goods or services suitable to a person’s condition of life and to his actual requirements at time goods/services supplied
Registered companies
Contratc between registered comp AND outsider = binding
Registered comp can never act ultra vires with outsiders + powers of Ds to bind comp free of any limitation.
Statutory corporations
Local authorities
Look at statute that created to know for what purposes statutory corp. can enter contracts (contracts about that binding), otherwise void.
Limited Liability Partnerships (LLPs)
Have unilimited capacity. LLPs are always bound.
